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ITC is not available on goods which are inputs but distributed as free gifts as per Section 17(5)(h).

Appellate Authority for Advance Ruling — ITC on Promotional Goods – The appellant is engaged in business of sale of pharmaceutical goods and services. The Appellant also gets its products manufactured through third party manufacturers who manufacture goods on contract manufacturing basis. The Appellant offers various promotional schemes such as “Shubh Labh Trade Loyalty Program”, etc. In case of brand reminders, products like pens, notepad, key chains etc. are distributed to the distributors with their name embossed on it. The Appellant sought an advance ruling as to whether input tax credit is available of the GST paid on expenses incurred towards promotional schemes of “Shubh Labh Loyalty Program” or goods given as brand reminders. The AAR vide order dated 24.04.2019 has answered in negative on the ground that the promotional schemes goods, or services are nothing but gifts and therefore there will be no ITC as per provisions of Section 17 (5)(h) of the Act. Being aggrieved, the Appellant filed appeal on the ground that the the products given away as promotional items is not a gift as the watch is given under the contractual obligation of the scheme; to constitute a gift the property should be transferred voluntarily and not as a result of a contractual obligation; transaction between the appellants and the distributor/wholesaler is not a barter. The authority observed that the subject goods/services are being provided free of cost and there is no contractual obligation therefore, these are given as gifts. No consideration in whatever form is received by the applicant. These goods are inputs but distributed as free gifts. Therefore ITC is not available as per Section 17(5)(h). The member (SGST) has upheld the order of the AAR. The Member (CGST) has set aside the order of the AAR in favour of the appellant. Held that:- The Hon’ble Appellate Authority for Advance Ruling held that as per Section 101 (3) of the Act, it shall be deemed that no advance ruling can be issued in respect of the question under the appeal.
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